Commentary: EDA Industry Update March 2008 -- What did the Last Quarter Bring?
by Dr. Russ Henke and Dr. Jack Horgan
In the May 2003, December 2003, February 2004, August 2004, December 2004, February 2005, May 2005, August 2005, December 2005, February 2006, May 2006, August 2006, December 2006, February 2007, May 2007, August 2007 and November 2007 EDA Commentaries by the authors (published on EDACafé.com), the then-current yearly and quarterly financial performances of a selected group of publicly traded Electronic Design Automation (EDA) companies were analyzed and compared. Expectations regarding the future financial performances of these same EDA entities were documented as well. The selected companies were Altium, Ansoft, Cadence, Magma, Mentor Graphics, Nassda, Synopsys, Synplicity and Verisity.
This March 2008 report covers their performances for the nominal Fourth Quarter of 2007 and the calendar year 2007.
In this issue, EDA News Highlights are followed by the revenue & earnings performances of the selected group of EDA players for Q4 2007, and then EDA vendor by vendor details. EDA Vendor stock prices are discussed. Revenue & earnings performances for the calendar year are then presented. Finally, individual EDA vendor forecasts for Q1 2008 are provided. Enjoy!
Note: As part of continuing EDA industry consolidation, two previously-selected EDA vendors, namely Verisity and Nassda, have been acquired by others and hence have been dropped from the authors' quarterly EDA Commentaries.
EDA News Highlights
The potential war in high definition formats between Sony's Blue-ray and Toshiba' HD-DVD that threatened to replay the BetaMax vs VHS war, is over. Toshiba announced recently that it would cease building machines to play its HD DVD video format, effectively ending a battle between the two rival technologies.
Walt Disney, Sony Pictures, Twentieth Century Fox, and MGM had backed Blue-ray exclusively. Universal and Paramount had been backing HD DVD. Warner Brothers Entertainment had been producing both formats, but in early January it announced that will create high-definition movies discs only in Blue-ray format.
In simple terms, Blue-ray had more capacity, but it was more expensive per player and per disc. The fact that Sony's Playsation3 could play movies in the Blue-ray format helped make it more popular. Blue-ray also supports a more sophisticated anti-copying scheme, a digital rights management (DRM) than that offered by HD DVD. This was attractive to content producers.
On January 10. 2008 the Global Semiconductor Alliance (GSA, formerly FSA) released the CYQ3 2007 version of its Global Semiconductor Fundings and Financials Report. Q3 2007 semiconductor revenue totaled $71.9 billion, with fabless and IDM revenue accounting for 20% and 80% of the Q3 2007 semiconductor sales total, respectively.
North American semiconductor companies represented 52% of revenue, followed by Asia with 37%, Europe with 11% and India with less than 1%.
The top 15 semiconductor companies by CYQ3 2007 revenue accounted for $42.3 billion, or 59% of total semiconductor revenue.
On March 03, 2008, The New York Times reported that Intel recently revealed a family of processors "intended to power what it hopes will foster the development of a new category of compact, low-cost wireless Internet computers." The Intel Atom "is different from other chips found in today's mobile devices because it is intended for the netbook applications, giving it faster performance and lower power consumption." The Wall Street Journal added that, with the ultra-small chips, Intel is "hoping to drive demand for two emerging categories of computing devices." The Atom has two variants: One, "previously known by the code name Silverthorne, is designed to be the calculating engine for pocket-sized gadgets that" the company "calls MIDs, for mobile Internet devices. The other chip to carry the Atom brand, code-named Diamondville, is designed for low-end laptop and desktop computers expected to cost around $250." Reuters explained that the "Atom processor is based on a new microarchitecture designed for small devices and low power consumption." Atom "is less than 25 square millimeters, and 11 of the chip's dies -- the slivers of silicon with 47 million transistors each -- would fit in an area the size of a US penny." Silverthorne and Diamondville "are made on Intel's 45 nanometer chipmaking technology and slated for introduction toward the middle of this year."
How did the EDA Vendors fair during the Fourth Quarter of 2007?
As shown in Table 1, the combined revenue performance of seven selected EDA vendors was $1.173 billion, an increase of 10.7% from the $1.077 billion in the fourth quarter of 2006, and an increase of 16.4% from the $1.008 billion in the third quarter of 2007. The 16.4% collective sequential growth was significantly boosted by Mentor's low Q3 2007 performance. All seven EDA vendors improved revenue both year-over-year and sequentially.
On a year-over-year quarterly basis, Magma and Synplicity were the percentage revenue growth leaders, with increases above 20%. Ansoft, Mentor and Altium delivered percentage increases in the mid-teens. On a sequential basis, Mentor was the runaway percentage leader at 53% growth, owing in part to its relatively low Q3 2007, with Altium a strong second at 44% on a far smaller base. Ansoft and Cadence exhibited low double digit percentage growth, while Synopsys was flat.
Figure 1 above and Figure 2 below provide additional revenue comparisons among vendors. Cadence was number one in revenue share for Q4 2007 at 39%, Synopsys number 2 at 27% and Mentor Graphics number 3 at 24%. As usual the big three EDA oligopoly accounted for just over 90% of total Q4 2007 revenue of the selected group of seven EDA vendors. Magma was a distant fourth at 5%.
Turning to earnings performances in Q4 2007, Table 2 shows that the EDA group of six (Altium does not report earnings quarter-by-quarter) reported a combined net income of $213 million, amajor increase of 119% from the $97 million in the fourth quarter of 2006, and a 103% increase from the $105 million in the just prior quarter. All but Magma had net income in the fourth quarter of 2007, and all the vendors managed increased earnings relative to both the same quarter last year and the just prior quarter. On a year-over-year basis, Synplicity was the percentage growth leader at 549% on a tiny base. Cadence's earnings performance was far more impressive (147% increase) on a far larger earnings base. Third place went to Synopsys at a 99% increase. On a sequential basis, Mentor had the largest earnings turnaround, going from a net loss of $9.1 million to a net gain of $36 million. Synplicity was again the percentage growth leader at 613%, due in part to a one time tax benefit. Cadence was number 2 in percentage gain and number 1 in absolute net income dollars, earning more in Q4 2007 than the other 5 vendors combined.